Medtronic-Covidien deal final — but how will it change the industry? 7 thoughts

Written by Laura Dyrda | January 28, 2015 | Print  |

Medtronic finalized the acquisition for Covidien yesterday, after several months of waiting for regulatory approval.

It wasn't always smooth sailing; shareholders sued, the federal government sought to block Medtronic from moving headquarters overseas and CEO Omar Ishrak was under fire for receiving reimbursement — along with other top executives — to offset merger costs while most shareholders could take a hit.


The final acquisition was for $23.9 billion, and after the deal closed Mr. Ishrak reiterated the company's plans to invest $10 billion into medical technology research over the next 10 years, much of which will be spent in the United States.


Here are a few key points to the final deal:


1. After merging, the company has become Medtronic Plc and headquartered in Ireland, which has a 12.5 percent corporate tax rate, much lower than the 35 percent in the United States.


2. The change will inject cash into Medtronic, allowing the company to meet its promise to return half of free cash flow to investors, according to a FirstFT report. The combined company can now use 60 percent of its free cash flow, compared to 35 percent previously.


3. The "trapped cash" overseas could be used to fund more acquisitions, but the company will likely wait until Covidien is fully integrated to announce a new deal, according to the FirstFT report.


4. Medtronic's management and operational headquarters are still in Minneapolis, according to a Boston Globe report. Some Covidien executives will remain with the new company, but many will not.


5. Integration for the two companies poses a challenge, since there isn't much overlap between Medtronic and Covidien offerings. Most Covidien products will go into Medtronic's new surgical tool and hospital supplies group, created after the merger.


6. Medtronic's goal is to reduce overall operating costs by $850 million over the next three years. The strategy to meet these goals will include closing some sites and eliminating some jobs.


7. The larger company has more bargaining power with hospitals and other buyers, according to FirstFT, which is a huge advantage in this competitive industry. Smaller companies and single-product suppliers cut prices aggressively to compete and win market share. Medtronic is answering with a "wider range of products to build tailor-made solutions for doctors and surgeons."


More articles on orthopedic devices:
10 observations on spine tech innovation: Are we entering the Dark Ages?
7 key updates on the robotic medical technology market
10 key updates on Titan Spine—27k implantations and growing

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